There were a number of take-aways for attendees of the recent WorkforceNEXT Spring Summit, which tackled Strategies and Opportunities: Managing in a Turbulent Oil and Gas World – a timely topic if ever there were one. And presenter after presenter espoused one of the central points: that the industry has been down this boom-and-bust road before, and the industry always comes back.
The overall tone of the event was somewhat optimistic, considering the amount of gloom in the media about the downturn in crude oil prices, and several presenters noted that there are opportunities to be had. A few presenters noted that layoffs now only mean additional hiring later, particularly in this era of the “great crew change,” and that when layoffs are necessary, they should be done properly, and only after other cost-saving methods have been explored.
Working as a team
“When in a cost-cutting mode, be very careful, because anyone could be your next boss,” James Tastard, VP of human resources, Freeport LNG said. “Take care with everything you do in a cost-cutting environment.”
Tastard noted that future leaders are noting how current industry leaders are managing the downturn, and preparing for future hiring as more senior workers retire.
“The war for talent is not over; it’s just changing. The crew change is still here,” he said. “There is a whole new leadership pipeline that is under development, and they are taking their cues from us. So, be aware of that. We’re all mentors and sponsors, and that has a lot of responsibility.”
Human Resources and Total Rewards executive Luis Jimenez said that the talent acquisition and retention model “has drastically changed in our industry,” and he noted that the change needs to be managed. Rather than simply hiring, competing for talent, and hiring some more, and sometimes attracting new workers by paying a premium for them, oil and gas companies now have to accept new ways of attracting and rewarding new talent.
Instead of struggling during a period of uncertainty, concepts like Pay for Performance can help businesses succeed, Jimenez said. For most oil and gas companies, it’s not just a one-size-fits-all strategy. There is an opportunity to take the uncertainty and make it into an opportunity to align better with the operations and management people, he said. Base salaries are fixed, and they drive budgets. So, salaries of some workers can be frozen until the market comes back. Increases can be reserved for better performers.
“If you don’t have details on who is doing well and who is not, it is very hard for management to make decisions on those things (compensation),” Jimenez said.
Supply and demand trends
The layoffs and hiring freezes in the oil and gas sector over the past few months were brought about by the drop in crude oil prices, and prices got weaker due to an imbalance in the supply/demand equation. So, keynote speaker Michael Bergen, executive VP, Industrial Info Resources, touched on some of the short-term supply and demand trends for the oil and gas market. Some of the supply trends include:
- After gains in early February, crude oil prices have stabilized, with Brent being priced at a premium to WTI
- Prices have rebounded off falling rig counts and contango traders who are “opportunistic buyers”
- The US rig count declines have not yet filtered into lower US production growth
- Global oil supply has continued to rise
- Supply growth has been led by a gain of 1.4 million barrels of oil per day in non-0PEC production
- US supply has been revised upwards by 300,000 barrels of oil per day in Q4, 2014, and Q1 2015 has also been revised up
- OPEC crude edged down by 90,000 barrels of oil per day, with loses in Libya and Iraq offsetting higher Saudi, Iranian and Angolan production
Some of the demand trends include:
- Global oil demand bottomed out in Q2 2014, and has since risen steadily
- The global demand forecast was raised 75,000 barrels of oil per day to 1 million barrels of oil per day. The 2015 average is expected to be approximately 93.5 million barrels of oil per day
- Global refining throughputs were raised for H1 2015, but annual gains are forecast to be down from 2.2 million barrels of oil per day in Q4 2014
- Storage is building up in the US, China, India, Europe, S. Korea, Africa and Japan, and is now at 70% capacity.
The drop in US crude imports into the Gulf Coast area are disproportionately from light crude oil, with heavy crude being the least-affected.
Working through layoffs
Since 2010, oil and gas industry employment has been growing as a percentage of the US civilian workforce. However, due to a slowing of hiring, and the beginning of layoffs in the industry, the percentage that oil and gas employment contributes to the general economy began slowing in 2014, according to The Persimmon Group’s CEO, Bill Fournet.
Fournet focused on the rounds of layoffs getting coverage in the media, and noted that how the layoffs are conducted is critical.
To thrive in today’s market, and to successfully get through downsizing and reorganization:
- Leadership must be out front
- Use a scalpel, not a chainsaw
- Explore all other options first
- Tie downsizing/reorganizations to the company’s long-term strategy
- Be just; the pain must be shared by all
- Communicate the “what you know at this time” and “why this decision is happening” messages
- Give real support
- Continue to hold expected events, sponsorships, etc.
- Invest more energy into those who remain. Don’t let those who remain feel as if they are victims.
- Understand that layoff survivors want to know how their role will be affected, and they want to know if they should be looking for another job elsewhere
Finally, in one of the afternoon sessions, Sasol’s Jeff Gill, who heads up Human Resources – People and Organizational Effectiveness, summed up the layoff picture the oil and gas industry is going through by giving a key piece of advice worth remembering: how layoffs are handled is even more important than how recruiting is done.